American Eagle CEO’s departure is a ‘stunner’

By Andria Cheng

American Eagle Outfitters Inc.’s announcement late Wednesday that CEO Robert Hanson had suddenly left the business has been described as anything from a “stunner” to “wow, that was a surprise.”

Hanson, a former Levi’s executive, was only two years on the job with one year still left in his contract. He also had just presented the company at a well-attended ICR analysts conference earlier this month. And he was a Wall Street darling, with analysts giving him kudos for steering the company through its merchandise turnaround and expanding its online, outlet and global footprint.

The market reaction was swift. American Eagle shares slumped as much as 10% in early trades Thursday.

“We thought that Mr. Hanson had created a more reliable and stronger business model than ever before at the company,” said Brean Capital analyst Eric Beder. “We are highly disappointed in his departure.”

Still, Beder said he’s keeping his buy rating, albeit a “wary” one, because he thinks the product offerings are “solid” and the next six months of merchandise buying are “already in the books,” which he said should allow the teen retailer to rebuild after a tough 2013.

“That said, if there’s any shift in anyway from the current business model to the bad old days of (American Eagle), we will quickly become less aggressive,” he said.

Jefferies analyst Randal Konik said while the news will hurt the stock near term, he said it’s likely the last of the bad news.

“Our teen panels and survey work point to stronger brand relevance” for American Eagle
/quotes/zigman/183513/delayed/quotes/nls/aeoAEO versus rivals Abercrombie and Aeropostale, said Konik, who also is keeping his buy rating. He said the company can still “restore brand momentum” and lift profit and margin through inventory and expense control and better merchandising and faster product roll-out.

However, the bull camp is in the minority. One third of 25 analysts tracked by FactSet rate the stock a buy, with the other two thirds consider it a hold.

“Visibility for the turnaround of the business has grown less certain,” said Stifel analyst Richard Jaffe, who cut the stock to hold from buy. “There’s uncertainty surrounding both the merchandise turnaround and the CEO search.”

Jaffe said it will take time to find a qualified CEO to replace Hanson, whose appointment he said took American Eagle about one year’s search to seal. He said it will also take time for the new CEO to make any material impact.

“With his exit, the merchandise turnaround may be stalled,” Jaffe said.

Nomura analyst Simeon Siegel agreed the transition will likely “cast degrees of uncertainty” in the near term, against an already tough landscape for teen retailers.

“The promotional environment has clearly been weighing on the teen selling environment and now in addition to fighting for customers, teen retailers may well find themselves fighting for talent,” he said, adding the company will be looking for a new CEO at the same time Abercrombie has begun its search for brand presidents for its Hollister and A&F units.

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Behind the Storefront is a blog about all things retail. It’s aimed at investors, shoppers and anyone else with a passion for learning about what drives consumer behavior. Hosted by Andria Cheng, Behind the Storefront will cover the business, brands and shopping behavior that’s behind some of the biggest companies, and largest employers, in the world. You can reach Andria at Acheng@marketwatch.com.